NEW ISSUE CORPORATE BONDS, SEASONED MARKET EFFICIENCY AND YIELD SPREADS.

Theory suggests that two bonds which are comparable in all respects should offer investors the same yield. However, the yields of new corporate bonds often differ substantially from almost identical seasoned (outstanding) bonds. The most extensive work investigating this difference in yields between new and seasoned bonds (yield spread) was done by Conard and Frankena (3). Their primary finding was that differences in coupon rates between new and seasoned bonds of equal quality (Aa Public Utility) accounted for about one-half the yield spread. Because of this finding, equal quality new and seasoned bonds with the same coupon rates are used in the present study. [ABSTRACT FROM AUTHOR]